Analysts at banking group JP Morgan say they “do not like the timing” of liquidity-pressured Macau casino operator SJM Holdings Ltd issuing HKD1.9-billion (US$242.8-million) in convertible bonds, to acquire the premises of Oceanus (pictured), a venue with a casino, located near the city’s Outer Harbour.
“We do not like the timing – when SJM suffers severely from a liquidity strain with very limited runway” in terms of cash availability, wrote JP Morgan Securities (Asia Pacific) Ltd analysts DS Kim, Amanda Cheng and Livy Lyu, in a Thursday note.
Hong Kong-listed SJM Holdings had said in a filing late on Thursday, that it would take full control of the Oceanus building. The group runs Casino Oceanus at the complex, which it had been leasing from a unit of its majority shareholder, Sociedade de Turismo e Diversões de Macau SA, also known as STDM.
SJM Holdings’ chairman Daisy Ho Chiu Fung, said on Thursday the group was “working through the final details” of negotiating the refinancing of syndicated banking facilities, of which HKD13.3-billion – about US$1.7-billion – were outstanding as of February.
Brokerage Sanford C. Bernstein Ltd reiterated in a Friday note, the investment community’s view that SJM Holdings currently had only three months’ worth of available liquidity in a “zero-revenue scenario”. That was a reference to the stop-start nature of tourism from mainland China to Macau in recent months, as a result of Covid-19 countermeasures on the mainland.
Earlier this month, SJM Holdings had indicated to investment analysts it had the option to ask for an up to HKD5-billion loan from parent STDM, if faced with liquidity problems.
Housekeeping ahead of public tender
JP Morgan said in its Thursday memo that the Oceanus deal was essentially housekeeping, ahead of an anticipated new public tender for Macau gaming rights, when the current concessions expire this year.
Were a current concessionaire to fail in getting fresh rights, then casino spaces – though not non-gaming ones – would revert to the Macau government under the existing gaming law.
The Oceanus building has no hotel, and limited non-gaming facilities, but as SJM Holdings does not currently control the building, it would not even be able to hand back the casino area to the government in the event the firm did not gain a fresh concession.
“This is why SJM is buying the assets from STDM to be able to … revert… to the government,” wrote the JP Morgan team.
The brokerage said it “did not know” the scope of Casino Oceanus’ earnings before interest, taxation, depreciation and amortisation (EBITDA) prior to the pandemic, as for SJM Holdings’ reporting purposes it was consolidated under the heading “other self-promoted casinos”.
“We understand SJM used to pay approximately HKD100 million per annum to STDM as rents,” added JP Morgan.
“We don’t think SJM needs to buy any other assets, because: Grand Lisboa and Grand Lisboa Palace are 100-percent owned by SJM,” and “SJM owns the gaming floor of the old Lisboa property,” stated JP Morgan. The hotel at the latter site has historically been under the control of STDM.
A Monday note from Sanford Bernstein said – citing management – that Oceanus had been outperforming the market in the first quarter, in terms of producing “approximately 40 percent of 2019 gaming revenue – better than Macau’s first-quarter 2022 total GGR running at approximately 23 percent of first quarter 2019.”
The brokerage added: “According to SJM management, during pre-Covid years, Casino Oceanus could deliver approximately HKD600 million EBITDA per year. The property has many low-limit tables and caters to a lower-end customer from China and Hong Kong – often day trippers -, as well as come local customers.”
(Updated May 30, 9.40am)
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